Finance paper, anyone?

Malone’s Law No. 1: "Whenever a company builds a new corporate headquarters, short the stock."

This first one dates to the early Eighties when I was writing for newspapers.   It was provoked by the construction of Hewlett-Packard’s headquarters in Palo Alto.  What I noticed at the time, and which was confirmed over and over again in the years to come, was that whenever a company finally reaches the point that it needs a fancy new headquarters, it has usually lost track of the lean and mean style that made it a success in the first place.  And if that doesn’t do it, then the months company executives spend pouring over the design of the new facility, jockeying for the best offices and lobbying for an executive dining room, inevitably distracts them from the real job of making money.

Comments

[Ironman]

That would be an interesting study - I wonder if there might be a correlation between management generation and the decision to build a "statement" facility (or rather, how far removed the management team that initiates the decision is removed from the original company founders).

Potential case study: Steelcase

http://www.mlive.com/business/west-michigan/index.ssf/2009/07/steelcase_inc_to_desert_its_py.html

[Peter]

I recall reading a comment somewhere ages ago that one should be wary of a company's stock whenever the CEO starts building that dream mansion they've always wanted--for much the same reasons concerning loss of focus and distraction mentioned above.

[kyle8]

I also think this is a good tip. I remember my first out of college job was at a large regional Bank. They built a huge new office tower and within two years they had lost so much money the Fed merged them out of existence.

[david foster]

Another interesting clue may be found in the literary style of the CEO's letter to shareholders--see also this.

[david foster]

Links didn't work...try it this way:

http://chicagoboyz.net/archives/5759.html

http://photoncourier.blogspot.com/2009_07_01_photoncourier_archive.html#75277469905675626

[John Henry]

"The decline of British imperialism actually began with the
general election of 1906 and the victory on that occasion of liberal
and semi-socialist ideas. It need surprise no one, therefore, to
observe that 1906 is the date of completion carved in imperishable
granite over the British War Office doors. The campaign of Waterloo
might have been directed from poky offices around the Horse Guards
Parade. It was, by contrast, in surroundings of dignity that were
approved the plans for attacking the Dardanelles.

The elaborate layout of the Pentagon at Arlington, Virginia,
provides another significant lesson for planners. It was not completed
until the later stages of World War II and, of course, the architecture
of the great victory was not constructed here, but in the crowded and
untidy Munitions Building on Constitution Avenue."

C. Northcote Parkinson
"Parkinson's Law" [The book]

I used to use the book as a required reading in my Human Behavior in the Organization classes. Great great book. Should be read by everyone.

John Henry
www.changeover.com

[Tim Worstall]

I was just about to leap in and point out that the basic idea came from Parkinson. And yes, everyone should indeed read it.

The chapter on how the Royal Navy went from few admirals and many ships to few ships and many admirals is still a classic of how bureaucracies work.

[Nathanael Snow]

I remember reading about a university that moved several departments into a new building. Of the departments that moved several incurred the rent-seeking problems of internal politics. The econ department, however, auctioned off the offices, and contributed the money to a scholarship fund.
Could corporate firms employ the same strategy, donating funds to a charity in their new locality, and avoiding the rent-seeking loss of productivity?

[JorgXMcKie]

I always liked "Parkinson's Law Revisited" which, when boiled down, comes to, "It is worse than I thought!"
;->=
And my wife's firm just moved into their new corporate offices. Oh, my!! Well, it's a closely held corp, so we can't even short it.
(We are, however, saving like crazy.)